[Satellite News 11-19-10] Asia Broadcast Satellite (ABS) CEO Tom Choi is looking to expand his satellite fleet as the operator, now majority owned by Permira Funds, enters a strategy to strengthen its market position by acquiring new assets.
    Choi told Satellite News that ABS is aggressively looking for opportunities for the company to grow. “We have had the fortune of being one of the fastest-growing companies in the sector over the last few years. We have no desire to give up that pole position. We want to continue to grow as fast as we can, while doing smart deals with the right partners. This industry is about economies of scale. The bigger we can get the better. As a satellite operator without sufficient economies of scale, you will not generate enough cashflow to expand your business on a consistent basis. While ABS will achieve such scale with the launch of ABS-2, we are also open to acquisitions that make economic sense.”
   To build its business, Choi said ABS is focusing on emerging markets. “We don’t see the highly developed markets such as East Asia, Western Europe or North America as sustaining double-digit growth in the near future. However, we do see double digit growth in all the emerging markets such as Eastern Europe, Central Europe, Middle East and Africa, South and South East Asia. It is in these emerging markets where we have our core customers and we are planning to focus in growing our fleet to serve their requirements in the near future.”
   With plans to increase fleet size, Choi admits the company must look into hitting the debt markets early in 2011. “Access to debt markets is not a unilateral decision. It really depends on market conditions. We are looking at revisiting the debt markets early next year.” 
   Choi believes that Permira’s ownership puts ABS in a great position to get the financing it needs going forward. “Permira is one the most advanced PE firms when it comes to being able to raise high yield debt. They raised a substantial amount for Intelsat prior to their divestment. We feel having Permira as our majority shareholder will make our job of raising high yield debt much easier, and hopefully at a lower cost. We believe in the merits of high yield bonds as well as Export Credit Agency (ECA) financing and we are weighing our options currently.”
   In October, ABS announced it had signed the contract with Space Systems/Loral (SS/L) to build the ABS-2 satellite, which is scheduled for launch in 2013. The satellite will have over 12 kW of payload power and up to a total of 87 active C-band, Ku-band and Ka-band transponders across 10 different beams bringing increased capacity and transmission power to the Middle East, Africa, Asia Pacific and CIS/Russia.  
    In terms of its sales strategy for ABS-2, Choi said the operator doesn’t want to discount all of its capacity and sell all of it prior to launch. “This would not be logical. We have a third of the capacity already leased out, at a substantial discount to market pricing. Some of the capacity is also for Condosat partners such as Korea Telecom and Singapore Telecom. Over the next 12 – 18 months prior to launch, we are planning to fill up another third of the capacity, with early bird customers, but not with as bigger discounts as we have signed in the past. Then, we want to sell some of the capacity after the satellite launches, and that will bring up the average transponder yield up to normal rates.”
    Choi also said his company is looking beyond ABS-2 and is planning ABS-3, with an announcement likely in 2011, depending on how long the debt markets are open. “Obviously, everyone has great ambitions and plans, but a key limiting factor will be the availability of affordable financing. To the extent that financing is available and low cost, we have the slots and customers to launch more satellites beyond ABS-2. We will gauge our aggressiveness for new builds as a function of how well financing markets perform in the near future.”

Background on the Permira/ABS Deal
The change of ownership is a significant for ABS. The initial agreement was announced in September, with Permira Funds, along with ABS management, announcing they had reached agreement to take over ownership of the company. Completion of the deal was announced earlier this month. Earlier this year, ABS’s main shareholder, CVCI decided after owning ABS for around four years that it wanted to exit this investment.
    Choi said he was pleased in terms of how this process worked and the fact CVCI only targeted financial sponsors to do a deal with. “Many people have asked the question why we ran a process targeting only financial sponsors and not with strategies,” said Choi. “It is because, in the first half of 2010, ABS was involved in sensitive negotiations on key business deals. Since these deals were being negotiated at the same time as we were running the process, we felt exposing our plans to competing satellite operators would jeopardize those sensitive negotiations. In fact, some of these satellite operators who expressed a strong interest in ABS were at the same time competing against us in for those deals we successfully completed. Thus for these reasons, CVCI allowed us to run a process exclusively talked to financial sponsors.”
    Choi believes that Permira are the perfect owners for ABS. “As this was an all equity transaction, they did not put up any leverage into ABS. Permira was also generous to put up some additional equity commitments to bring more capital should we need it in the future. Permira will be able to properly guide our strategy and the growth plans we have for the future. In many ways, Permira and the management team’s vision for the future are very much aligned. They support and believe in the growth strategy lead by ABS-2, our desire for more mergers and acquisitions and exploring the opportunities to launch additional satellites into other locations,” he said.

Permira’s Perspective
Richard Sanders, head of TMT and partner at Permira told Satellite News that the company had been impressed by how ABS had performed in recent years. “We were impressed by the management team and what they have been able to achieve in a pretty short period of time. They have executed a very interesting strategy, which has involved M & A on existing single assets. We think the set of assets they have assembled is a strong platform on which to build to carry out the consolidation we talked about earlier. We liked the growth trends in the markets they serve. If you think about DTH in Russia, Internet backbone connectivity in Africa, some of the U.S. government requirements in the Middle East, these are all fundamentally good growth drivers. This is in sharp contrast with some of the more mature markets for satellite,” he said.
    The satellite sector has been a good one for Permira down the years, and Sanders hopes the investment in ABS will follow other successful ones that Permira has had in the sector. “Over the years the satellite sector has generated good investment opportunities for PE firms like ours. Our funds did one of the early deals with Inmarsat, and also invested in Intelsat, which subsequently acquired PanAmSat. Both these investments generated very strong returns for our funds’ investors, 4x and 10x respectively.  In the sector, ABS, which has performed well throughout the recession and is well positioned to capture further growth from emerging markets is in an ideal sweet spot. It operates in a region which is still fragmented and where there will be further consolidation opportunities. This is what underpins our investment strategy and what the management led by Tom Choi will focus on.”